BRIEF

Policy Summary

This policy provides guidance for the appropriate financial accounting of Lawrence Berkeley National Laboratory's (Berkeley Lab's) Property, Plant, and Equipment (PP&E) and Internal Use Software (IUS), in accordance with Chapter 10 of the Department of Energy (DOE) Financial Management Handbook and other applicable regulations.

Who Should Read This Policy

Any Berkeley Lab employee involved with the purchase, fabrication, construction, betterment, and/or capital lease of a capitalizable PP&E or IUS asset.

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Contact Information

General Accounting Manager

POLICY

A. Purpose

This policy provides guidance for the appropriate financial accounting of Lawrence Berkeley National Laboratory's (Berkeley Lab's) Property, Plant, and Equipment (PP&E) and Internal Use Software (IUS), in accordance with Chapter 10 of the Department of Energy (DOE) Financial Management Handbook and other applicable regulations.

B. Persons Affected

Any Berkeley Lab employee involved with the purchase, fabrication, construction, betterment and/or capital lease of a capitalizable PP&E or IUS asset.

C. Exceptions

None

D. Policy Statement

1. General
   1. PP&E accounting includes all phases of the financial accounting life cycle as it relates to items that meet the capitalization criteria, including IUS. The financial accounting life cycle phases for PP&E include (1) acquisition or construction/fabrication, (2) capitalization, (3) depreciation/amortization, and (4) disposition/retirement.
   2. Capitalizing a fixed asset refers to the accounting treatment reserved for the purchase, fabrication, construction, betterment, and/or capital lease of items that meet capitalization criteria and are to be used in the operations of the Berkeley Lab. The cost of an asset meeting the capitalization criteria includes any costs necessary to bring the asset to its final form to be placed in service and any applicable costs of freight, installation, taxes, effort, etc. The process entails recording these items as an asset, instead of an operating expense, then depreciating or amortizing portions of the cost over the useful life.
   3. NOTE: Funding sources do not dictate capitalization treatment (see Section 5).
2. Capitalization Criteria

   1. Berkeley Lab will capitalize assets if they meet any of the criteria in Table 1.

      Table 1
      Capitalization Criteria	Capitalization Types (Refer to Section F. Definitions/Acronyms for additional information)
      Useful life > = 2 years and Cost > = $500K	Purchased Assets Fabricated Assets Constructed Assets Betterments of Existing Assets Bulk/Aggregate Purchases
      Useful life > = 2 years and Cost > = $750K and Development costs only (refer to Section 3 Table 2)	IUS (see additional information in Section 3 below)
      Useful life > = 2 years and Cost > = $500K * As of 10/31/23, DOE requirements for new lease accounting are pending updates.  Please reach out to General Accounting, [email protected], for direction.	Capital Leases*

   2. The following items are not considered capitalizable costs:
      1. Inherently experimental (e.g., prototype) items, or items that, by the nature of their association with a particular scientific experiment, are not expected to have an extended useful service life or an alternative future use.
      2. Legacy waste software where the primary purpose of the software is to support activities associated with environmental cleanup efforts.
      3. Maintenance and repair activities.
      4. Conceptual designs.
3. Internal Use Software (IUS)

   1. Berkeley Lab will capitalize IUS, which includes purchased commercial off-the-shelf (COTS) software, internally developed software, and contractor-developed software, if it meets capitalization criteria in Table 1. Berkeley Lab will capitalize only the aggregate Phase II software development costs, regardless of whether the software is deployed (put in use) in incremental stages. These costs shall be accounted / tracked separately from Phase I and III costs. Table 2 describes the three phases of software costs.

      Table 2
      Phase I System Planning or Conceptual Design (do not capitalize)	Phase II Software Development (capitalize)	Phase III Post-Implementation / Operational (do not capitalize)
      Conceptual formulation of alternatives Evaluation and testing of alternatives Determination of existence of needed technology Final selection of alternatives	Design of chosen patch, including software configuration and software interfaces Coding Installation to hardware Testing, including parallel processing phase	Data conversion Applicable maintenance

4. PP&E Financial Accounting Life Cycle Phases
   1. Acquisition or Construction/Fabrication Phase
      1. Divisions need to identify projects that meet the capitalization criteria at the time of project initiation by completing Plant and Capital Equipment (PACE) forms.
      2. If the project is operating-funded, the divisions are strongly encouraged to seek assistance from General Accounting and the Budget Office. Also refer to Section 5.
      3. Generally, project identifier(s) will be used to segregate and monitor costs in the Financial Management System (FMS) that require capitalization. In some cases, such as bulk/aggregate purchases, a unique Purchase Order (PO) identifier may be used to segregate and monitor capitalizable costs.
      4. Berkeley Lab will account for, accumulate, and monitor capitalizable costs for assets on the balance sheet account(s) Construction Work in Progress (CWIP) or Software Work in Progress (SWIP) until assets are placed in service.
      5. Divisions shall monitor project progress and submit a revised PACE form when there are material changes to the estimated total cost or estimated in-service date.
   2. Capitalization Phase
      1. Divisions need to submit a final PACE form upon completion of a project and when an asset is placed in service.
      2. Costs will be transferred from CWIP/SWIP to an appropriate fixed asset account to begin depreciation/amortization.
         1. Assets are to be recorded in accordance with the requirements in the DOE Financial Management Handbook (Chapter 10).
      3. Berkeley Lab will ensure such capitalized items are capable of specific identification and regular control through tagging and periodic physical inventory.
   3. Depreciation/Amortization Phase
      1. Berkeley Lab will use the straight-line method of depreciation/amortization.
      2. Depreciation/amortization reduces the net book value (original acquisition value less cumulative depreciation/amortization expense life-to-date) on a monthly basis over the useful life of an asset.
      3. Useful Life: DOE has established useful life for each asset category in Chapter 10 of the DOE Financial Management Handbook (Attachment 10-1) as a reference. However, divisions may choose to provide a useful life different from the DOE's reference based on their expert knowledge and uniqueness of an asset.
   4. Disposition/RetirementPhase
      1. In accordance with its Property Management policies, Berkeley Lab will "retire" assets no longer needed or in use.
      2. Based on actions taken in Property Management to dispose of or retire an asset, Property Accounting will make appropriate accounting transactions for disposition/retirement and financially remove the asset from Berkeley lab's Balance Sheet.
5. DOE Color of Money
   1. Most capitalizable costs are funded from capital funding sources, including Equipment (EQU), Construction (Line Item, Accelerated Improvement Project [AIP], and General Plant Program [GPP]), and Major Items of Equipment (MIE). However, capitalizable costs can also be funded from operating funds, including indirect funding sources. The source of funding, therefore, does not dictate the capitalization treatment.
6. Capitalization Process Flows
   1. Complete capitalization process flow diagrams are contained for reference in the appendices.
   • • Appendix I, Construction Work-in-Process (CWIP)
     • Appendix II, Internal Use Software (IUS)
     • Appendix III, Bulk/Aggregate Purchases

E. Roles and Responsibilities

F. Definitions/Acronyms

G. Recordkeeping Requirements

None

H. Implementing Documents

 I. Contact Information

General Accounting Manager

J. Revision History

Appendix I: Capitalization Process Flow – Construction Work-in-Process (CWIP)

Appendix II: Capitalization Process Flow – Internal Use Software (IUS)

Appendix III: Capitalization Process Flow – Bulk/Aggregate Purchases (CWIP)

DOCUMENT INFORMATION

Source Requirements Documents

• DOE Financial Management Handbook, Chapter 10, Accounting for Property, Plant, and Equipment
• Federal Accounting Standards Advisory Board (FASAB) — Statement of Federal Financial Accounting Standards 10: Accounting for Internal Use Software

Implementing Documents